Britons warned of retirement crisis

Page Tools

More than 12 million British workers aged over 25 are not saving
enough to fund their retirement and the average retiree faces a 30
per cent cut in the value of their state pension, a report has
warned.

The Pensions Commission has revealed that millions of workers
face retiring in poverty unless they and the Government act
urgently to meet a ££57 billion ($A140 billion) annual
shortfall in saving levels.

At current levels, future pensioners face a 30 per cent cut in
retirement income or will have to work until they are 70 to enjoy
the same standard of living as today's retirees, the report
says.

Unlike Australia, British employers are not compelled to pay
into employees' superannuation funds and for most wage earners, the
state pension is funded from contributions made during their
working life. British pensions have come under enormous pressure
due to falling birth rates, higher life expectancies and problems
with share-based pension funds.

The Government commissioned the report into the extent of
Britain's retirement crisis but is not expected to act on it until
after the next general election, expected next May. Pensions are
likely to be a central poll issue.

The 528-page report explodes the comforting myth that the state
will look after most British workers in old age.

It reveals 11.3 million workers are not contributing to a
private pension scheme, including 1.7 million self-employed.

Britain is said to have four "unavoidable" options, or a
combination of them, to stave off the crisis:

Accept that pensioners will be poorer than today.

Raise taxes or national insurance contributions, or cut
spending in other areas.

Rapidly boost private savings among current and subsequent
generations.

Increase retirement age.

"If we want to keep pensioners as well-off, relative to average
incomes, but we do not increase taxes or saving rates, the average
age of retirement would have to rise from the current male average
of 63.8 to 69.9, in addition to the current female average of 61.6
rising to equal the male level," the report says.

It criticises the existing "bewildering" system of state-funded,
means-tested pensions for failing to provide people with incentives
to save for their retirement.

The Government's Work and Pensions Secretary, Alan Johnson, has
ruled out big tax rises and said he opposed raising the male
retirement age to 70 until at least 2008.

But the Government was looking at financial incentives to
encourage people to work longer, he said.